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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Look who just darkened

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Speaker 1: the Door? Tim Craighead. He is a director of research

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Speaker 1: for Bloomberg Intelligence. He's based in London. Uh. He's been

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Speaker 1: a Bloomberg Intelligence for thirteen years. Uh, since the absolute

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Speaker 1: beginning of Bloomberg Intelligence. Prior to that, he was a

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Speaker 1: Goldman Sachs for like twenty years, a managing director doing

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Speaker 1: god knows what over there um. But he's been picking

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Speaker 1: stocks for a long time. He's seen some good names,

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Speaker 1: some bad names. Tim is joints us here in a

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Speaker 1: Bloomberg in Actor Brooker Studio. Tim Europe, we think of

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Speaker 1: the US market, Oh my goodness, at SMP five PC

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Speaker 1: last year it was just a brutal year. Talk to

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Speaker 1: us about European stocks last year and kind of what

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Speaker 1: the alok is for this year. Absolutely, thanks for having

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Speaker 1: me on Um, Matt, you look great. Thank you. I

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Speaker 1: love the beard. Thank you. You're one of the few.

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Speaker 1: So they they Europe certainly was under pressure last year,

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Speaker 1: but it wasn't under nearly the pressure that the SMP

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Speaker 1: five was UM, and obviously NAZAC was even worse. UM,

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Speaker 1: so you're ape out performed interestingly from the bottom of

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Speaker 1: last October where there was a trading low in Europe.

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Speaker 1: It's like over here, uh, European markets are up six

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Speaker 1: UM the foot see as the biggest market within the

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Speaker 1: within Europe is up. So there's there's been a nice

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Speaker 1: move there. And you know, there's been this battle evaluation

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Speaker 1: versus earnings UM. Last year, evaluation one earning state really high.

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Speaker 1: Surprisingly so UM evaluation just got crushed with rising interest rates.

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Speaker 1: Since October, we've actually seen earnings roll over. We've had

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Speaker 1: five percent negative revision in two thousand twenty three earnings

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Speaker 1: estimates for the stock six hundred. But the market's risen

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Speaker 1: because evaluation is now looking out towards the two thousand

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Speaker 1: twenty four recovery, and valuations also in Europe are much

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Speaker 1: lower than valuations here. Right on the S and P

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Speaker 1: five hundred. The other day, I was looking at it

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Speaker 1: was almost nineteen percent again right, nineteen times earnings excuse me,

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Speaker 1: and UM Europe was more like twelve. It's twelve twelve

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Speaker 1: and a half times forward UM currently for the stock

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Speaker 1: six hundred, the foot seas at ten point four. Now,

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Speaker 1: the issue for is you've have explained to me over

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Speaker 1: the years and as I read your research from you

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Speaker 1: and your team, is Europe the UK have a much

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Speaker 1: lower weighting and technology versus the US markets, and that

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Speaker 1: accounts for the valuation differential and the performance. Yeah. Absolutely so.

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Speaker 1: We we put out a note last week. Two things

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Speaker 1: I think of note relative to to this UM. One

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Speaker 1: was on valuation specifically and and oriented towards the foot

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Speaker 1: Sea given that it trades at such a low multiple.

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Speaker 1: And you know, the comment was essentially you can find

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Speaker 1: it on the terminal. You know, it's it's cheap for

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Speaker 1: a reason. And you know you've got big components of

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Speaker 1: energy and materials and banks which trade at lower multiples.

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Speaker 1: Especially with the energy and materials, it essentially peak earnings

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Speaker 1: and so therefore multiples UM and it's got zero tech

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Speaker 1: will one percent tech UM. So it's just a dramatically

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Speaker 1: different proposition. And that whole idea that we've talked about

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Speaker 1: in terms of value investing versus growth investing. Europe broadly,

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Speaker 1: the foot See specifically, is more value oriented than say

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Speaker 1: the US, and it plays into an environment where interest

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Speaker 1: rates and inflation, even if they're coming off peak, are

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Speaker 1: still at relatively elevated levels. And I tend to think

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Speaker 1: of the U s as as heavy and Europe as

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Speaker 1: oil heavy. And I guess if you're heavy in any

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Speaker 1: one sector, that would lead to more volatility, right, less diversity, UM.

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Speaker 1: But I don't think Europe is really as it's really

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Speaker 1: the Footsie that's oil heavy, right, because they have a

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Speaker 1: roll up shell British Petroleum UM, and it's the rest

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Speaker 1: of York just has like Total well it's Total and

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Speaker 1: and and SAL and and E and I. But it's

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Speaker 1: it's five of the market for the stock six hundred,

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Speaker 1: even including the UK UM, where the Footsie is about ten,

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Speaker 1: so it's it's definitely heavier there. I would say that

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Speaker 1: Europe is still commodity heavy relative to your relative to

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Speaker 1: the US, but there it's it's part metals and mining,

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Speaker 1: which again is heavy in the UK, but in Europe

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Speaker 1: broadly the continent it's chemicals and Yeah, that's one of

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Speaker 1: those things where right now that's a question is to

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Speaker 1: whether that's pressure point or an opportunity becau as you know,

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Speaker 1: our energy prices higher or low, which is an input

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Speaker 1: cost by the US is I mean, how much of

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Speaker 1: the S of the S and P is tech? It's

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Speaker 1: like fifercent right, Well, it's more than that. And if

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Speaker 1: you include e commerce is tech. And if you include

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Speaker 1: the Internet which is in media, and you take that

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Speaker 1: whole conglomeration, it's still call it three percent of the

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Speaker 1: mark all right? For for all our listeners, I'll point out,

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Speaker 1: just as an aside that Tim and Matt obviously go

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Speaker 1: to the same barber, and we'll just leave it at that.

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Speaker 1: Um So, Tim, as we look ahead to what are

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Speaker 1: your end you know, to the ribbing bald men get

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Speaker 1: we're people to Paul, people to exactly Tam, what are

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Speaker 1: our things here? As we look to the UK and

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Speaker 1: your Yeah, I think you know, a big issue for

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Speaker 1: for the region is going to be no no surprise

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Speaker 1: what happens to energy where it was a much bigger

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Speaker 1: shock than it was over here. And thank god we've

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Speaker 1: had a warm winter so far. It's not good for

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Speaker 1: skiing in the Alps. What there's no snow right now?

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Speaker 1: It's horrible. Didn't you just go skiing there was snow

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Speaker 1: when in the US we're just delu California cannot dig

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Speaker 1: out from all this. Although I was in Vermont for

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Speaker 1: New Year's and that wasn't so hot, never never was.

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Speaker 1: But nonetheless, so I think energy rolling over is a huge,

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Speaker 1: big deal from the standpoint of reducing some of that

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Speaker 1: um threat um that could have really put a spanner

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Speaker 1: in the work, so to speak, for the economy. And

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Speaker 1: you know, that's lifting you know, the opportunities we can

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Speaker 1: look towards two thousand twenty four unless something stupid happens

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Speaker 1: between Russian Tchin to reopening. Like when I think of

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Speaker 1: some of the European companies that I think of Semens,

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Speaker 1: it's the big german manufacturing, I say, I was that

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Speaker 1: that's a second one, that is a it's I think

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Speaker 1: it is more leverage to Europe because of its industrial, consumer,

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Speaker 1: discretionary um commodity base that feeds into a China reopening.

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Speaker 1: And the Europeans have just gotten along with miracle. Will

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Speaker 1: hold a call with Shiji and Ping and they're nice

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Speaker 1: to each other. It's different than the Trump China relationship. Now,

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Speaker 1: the Biden China relationship has been very adversary, uh and adversarial.

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Speaker 1: I think that's that's that's where you go, thank you uh.

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Speaker 1: And the Europeans have been courting China, you know, um,

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Speaker 1: we have been angry at them for that, but now

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Speaker 1: they're going to reap the benefits of both their relationships

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Speaker 1: with China and global warning. Both of those things turn

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Speaker 1: out to be good for democracy. It's kind of crazy.

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Speaker 1: I do think that we've had lots of discussions about

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Speaker 1: this that it pushed came to shove and you had

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Speaker 1: two spheres of influence. Germany will leg in with Europe

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Speaker 1: and will leg into the US sphere as opposed to

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Speaker 1: the Chinese sphere. But there's definitely plane both sides where possible.

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Speaker 1: I think another big theme is just you know, talking

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Speaker 1: to climate change and whatever else. It's just what happens

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Speaker 1: on the whole sort of infrastructure green approach. It's a

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Speaker 1: big issue within the energy market, not only because there

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Speaker 1: are pure plays there, but you've got the big energy

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Speaker 1: exposure and what are they doing from the recycling of

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Speaker 1: their capital. They're not they're not digging new holes in

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Speaker 1: the ground for oil. They're putting it into renewables in

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Speaker 1: various ways, and it's a pretty interesting theme. Good stuff

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Speaker 1: coming out of Europe, coming out of the UK. Tim

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Speaker 1: Craig Headies Director Research and Senior European strategist for Bloomberg Intelligence.

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Speaker 1: He's based in London, Queen Victoria Street. Just an awesome,

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Speaker 1: awesome building, uh, that we have in Bloomberg in London.

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Speaker 1: But he's here in New York this week. How cool

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Speaker 1: is that. Robert Teeter, head of Investment policy and Strategy

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Speaker 1: at Silver Crest Asset Managers, joins us here in studio,

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Speaker 1: as does Jay Hatfield, CEO of Infrastructural Capital Advisors. So, Jake,

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Speaker 1: we saw the inflation data today. It looks like it's moderating.

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Speaker 1: What does that mean to you, Well, we're far more

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Speaker 1: bullish than um certainly the Federal Reserve on inflation and

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Speaker 1: some market participants, because we really look at CPI dash R,

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Speaker 1: which is our own index for inflation, which sounds exotic,

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Speaker 1: but all it really is is just the way cp

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Speaker 1: was calculated before. So instead of using the BLS is

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Speaker 1: highly lagged shelter component, we use case shoulder and that

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Speaker 1: index and you can verify this on the terminal leads

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Speaker 1: the shelter component by twelve months with a sevent correlation.

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Speaker 1: I'd like that chart. I'll make the charge. Yet, that's

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Speaker 1: that's interesting, Bob. What do you think I mean? Um,

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Speaker 1: inflation seems to be In hindsight, it looks like inflation

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Speaker 1: was transitory, and maybe I'm too early to say that,

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Speaker 1: but just a year later, well, I think there's been

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Speaker 1: a few different cycles within inflation. Certainly energies one, shelters one,

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Speaker 1: the goods components one, services as another. They're all in

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Speaker 1: their own cycles, all a little bit different in terms

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Speaker 1: of their transitory nature. To me, the key thing is

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Speaker 1: that the past few months, the month over month figures

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Speaker 1: have been coming down significantly. I think that gives the

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Speaker 1: FED a little more flexibility. So while they'll continue hiking,

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Speaker 1: it's in smaller amounts. They might then proceed to a pause,

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Speaker 1: and then I think they have a bit more flexibility

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Speaker 1: if the economy weakens to change policy, because they're able

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Speaker 1: to point to those metrics that improvements have been coming.

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Speaker 1: And so I think when we see them acknowledge that publicly,

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Speaker 1: that'll be a signal that their mindset is we have

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Speaker 1: started to hear speakers come out. Bostick the other day

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Speaker 1: was like, wait until CP I maybe I'd be down

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Speaker 1: with five. Then yesterday I think Susan Collins came out

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Speaker 1: and said I'm feeling twenty five, and today Harker was like,

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Speaker 1: twenty five looks good. So I guess they're trying to

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Speaker 1: tell us, not all voting members obviously, but that you know,

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Speaker 1: February first could be twenty five rather than fifty. But

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Speaker 1: they're definitely not going to pivot and cut right because

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Speaker 1: then they would lose credibility all over again. That's right.

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Speaker 1: I think they've earned a lot of credibility. They've they've

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Speaker 1: clearly indicated that they would prefer to be tougher rather

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Speaker 1: than weaker. They'd rather make the mistake of hiking too

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Speaker 1: much for too long. So I do think the basis

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Speaker 1: point hikes will continue, although I thought the comments today

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Speaker 1: from Parker acknowledging that the days of seventy five are

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Speaker 1: long behind us, we're also encouraging. I think in the

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Speaker 1: past there had maybe been some fear that those type

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Speaker 1: of hikes might continue, and I think that's starting to

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Speaker 1: fade into the background. But by the way, isn't that

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Speaker 1: a better mistake to make. Ja I mean, I heard

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Speaker 1: someone this morning say the FED made a mistake, you know,

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Speaker 1: by not raising rates early, and now they're making another

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Speaker 1: mistake by raising rates for too long. But um, making

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Speaker 1: a mistake and allowing inflation into the picture, real inflation,

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Speaker 1: that's a big mistake, whereas making a mistake that causes

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Speaker 1: a recession tightening a little too much, it's not a

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Speaker 1: huge mistake. Well, that's a great representation of the Fed's view.

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Speaker 1: We don't agree with it, okay, because no, Matt, you're wrong.

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Speaker 1: Just say the Fed, I mean, it's incredible entity. But

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Speaker 1: the reason we don't believe in that theory is that

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Speaker 1: the FED, we think, is too focused on the labor

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Speaker 1: market and expectations, and we don't think that there's a

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Speaker 1: risk of a wage price spiral. We really look at

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Speaker 1: as a price wage downward spiral. So in other words,

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Speaker 1: goods prices really drive wages, and if you really look

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Speaker 1: in this cycle, wages real wages of declining. So we

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Speaker 1: don't think it's a problem, but we recognize the FED does,

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Speaker 1: and that's why we're bullish on the market for the year,

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Speaker 1: but cautious for this first six months. Because of exactly

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Speaker 1: this debate where the market really thinks inflation is cooling

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Speaker 1: or negative. Jeremy Siegal says that our index printed negative

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Speaker 1: point two, So you have that camp and then the

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Speaker 1: FED and they get to talk every day doing open

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Speaker 1: market operations. So if you're trading the market, that's always

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Speaker 1: a risk factor. So we're thinking for six months volatile,

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Speaker 1: second six months should be more bullish, Bob, what's what's

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Speaker 1: your calling your shop? What are you guys thinking about

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Speaker 1: as we head into after just a brewo, no matter

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Speaker 1: where you were. So we're modestly optimistic on the course

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Speaker 1: of the year. The timeline is difficult to predict, I

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Speaker 1: think because I think I have two influences going on,

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Speaker 1: one which is earnings, which we think will be perhaps

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Speaker 1: a bit better than than feared, maybe around flat, a

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Speaker 1: little bit positive, I think, with a lot of dispersion

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Speaker 1: beneath the surface, because the same cycles that are going

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Speaker 1: on within inflation are playing out across revenue and cost

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Speaker 1: structures of companies, So a lot of dispersion and earnings.

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Speaker 1: But we think that decline in inflation throughout the year,

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Speaker 1: that change in FED tone will improve valuation. So I

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Speaker 1: think I'll get a little bit of a lift from

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Speaker 1: improved valuations as we navigate the year. All right, so, uh,

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Speaker 1: the valuation picture I think has been really interesting, and

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Speaker 1: in terms of price earnings it's still we're still valued,

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Speaker 1: I think too high. It feels like right nineteen times earnings.

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Speaker 1: If you look at the S and P, where should

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Speaker 1: we be? And you know, um, are there better metrics

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Speaker 1: for you than P? Well, I think there are a

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Speaker 1: lot of different metrics. Of course, the one that that

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Speaker 1: we pay a lot of attention to is looking at

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Speaker 1: PE relative to where rates and inflation are, and that's

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Speaker 1: where I think we might get some of the upside

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Speaker 1: boost on PE. So I agree with you point in time.

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Speaker 1: Today it seems like stocks are certainly fairly valued and

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Speaker 1: not cheap. But as we see this turning and inflation,

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Speaker 1: and as we see interest rates stabilize and potentially decline

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Speaker 1: over the course of the next year, then I think

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Speaker 1: that gives you room to boost PES by a bit,

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Speaker 1: not a lot, but I think there is a little

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Speaker 1: bit of upside there. So we're not looking for massive gains,

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Speaker 1: but a little bit from the earning side, a little

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Speaker 1: bit from valuation puts you into pretty decent place certainly

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Speaker 1: a lot better than last year. Hey, j I, you

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Speaker 1: know energy is just ripped in that I missed that trade,

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Speaker 1: Am I done? I don't think that energy stocks are

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Speaker 1: going to lead the market this year. We're projecting that

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Speaker 1: oil trades in a pretty tight range e D two hundred.

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Speaker 1: But I will say that this is a very very

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Speaker 1: warm winter, as you can tell if you live in

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Speaker 1: New York City and in Europe as well, and that

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Speaker 1: was really the core of our both thesis. And having

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Speaker 1: said that, China's opening, so we're sticking to our eighty

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Speaker 1: two hundred, but that doesn't really argue for a rip

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Speaker 1: roaring energy market, so we're looking to more interest sensitive.

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Speaker 1: We are projecting a three tenure, which by the way,

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Speaker 1: does increase the fair multiple. Attend at a three yield

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Speaker 1: on the treasury, that implies an eighteen and a half

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Speaker 1: fair multiple, So you should really always look at them

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Speaker 1: to see so you can accept to higher pe when

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Speaker 1: yields are when rates are lower, right, that's the output

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Speaker 1: of a d CF. We run a constant DCF. But

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Speaker 1: but our bullish thesis requires rates to go lower because

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Speaker 1: right now our fair values thirty eight hundred on the

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Speaker 1: SMP so it doesn't go lower, we're in trouble. What

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Speaker 1: does what does the interest rate environment mean for you

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Speaker 1: for your businesses right now? You know, not your investment outlook,

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Speaker 1: but for the companies that you're running well, the companies.

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Speaker 1: There are certain companies that have exposure to short rate

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Speaker 1: to floating rate, and that is a headwind for some companies.

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Speaker 1: A lot of them swap it out or buy caps.

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Speaker 1: But that's something that we're changing our models and reducing

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Speaker 1: estimates for and that's a problem. I don't mean to

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Speaker 1: call it your specific companies. I'm just saying no for business,

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Speaker 1: you know, for for industry. Yeah, we fought. We have

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Speaker 1: models on all the companies and we follow a lot

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Speaker 1: of companies and they're all have headwinds and that is

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Speaker 1: a risk. But we don't think the Feds. We think

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Speaker 1: three more increases are pretty much in the bag. We

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Speaker 1: don't think that's going to hurt the economy that much

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Speaker 1: because long rates are likely to be going down, because

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Speaker 1: that's what's normal when the Feds overtight and most consumers

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Speaker 1: are exposed to long rates and not short rates. In

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Speaker 1: the United States, Canada they have more floating right then

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Speaker 1: I might be going some long term debt coming up

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Speaker 1: here soon. So I'll be your consumer who's in very

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Speaker 1: good shape. And actually it looks like most US consumers

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Speaker 1: are in pretty good shape. Even though savings rates have

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Speaker 1: come down substantially looking at this on the Bloomberg bank

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Speaker 1: balances are still very high historically. UM now we're starting

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Speaker 1: to see that rollover and we're starting to see credit

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Speaker 1: card UH people start to leverage up a little bit,

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Speaker 1: but not too much. What do you think about, Robert

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Speaker 1: the U S consumer? I think there's still some room

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Speaker 1: left for the consumer. It will be mixed across goods

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Speaker 1: and services. But what we've seen so far in terms

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Speaker 1: of the early comments from banks Jamie Diamond the other day,

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Speaker 1: looking at what happened with regard to airline reporting today,

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Speaker 1: looking across consumer discretionary earnings, they've all been pretty good

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Speaker 1: so far. It's very early days, but that indicates that

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Speaker 1: the consumers still got some runway in front of them.

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Speaker 1: Job market remains very strong, also mixed a lot. There

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Speaker 1: are a lot of jobs on offer, but there's certainly

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Speaker 1: places like tech and finance where there have been some layoffs.

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Speaker 1: So we think inaggregate, consumers still has some runway but

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Speaker 1: a lot of noise beneath the surface. By the way,

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Speaker 1: I was talking with my financial my personal financial advisor

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Speaker 1: yesterday and I was like financial advisor, I was like, dude,

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Speaker 1: can we I've got a little bit of cash that's

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Speaker 1: just in a savings accounting said, can I put this

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Speaker 1: in some high interest rate like hips. We were talking yesterday,

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Speaker 1: UM about the high income passed throughs this e t

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Speaker 1: F and he said, listen, that's can you give you

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Speaker 1: ten sent but we need for you to meet your goals,

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Speaker 1: you need to quadruple your wealth and then multiply that

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Speaker 1: by ten. So we need to get a lot more aggressive. Um.

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Speaker 1: I had a lot of other people must be in that.

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Speaker 1: That's not where you are. I mean, I'm almost fifty.

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Speaker 1: Uh no, I should have been here twenty years ago.

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Speaker 1: But nonetheless, I think a lot of other people are

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Speaker 1: in that position where they can't necessarily. Yes, you get

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Speaker 1: some juicy yields. We hear um people advising institutions saying, hey,

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Speaker 1: yield to worse for I g is five and a

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Speaker 1: half percent. That's great, but for me it's not enough.

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Speaker 1: What do you see out there in terms of opportunities

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Speaker 1: for people that need to amp it up. I think

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Speaker 1: it's all about time horizon, but I do think there

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Speaker 1: are some interesting tail winds developing in some portions of

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Speaker 1: the equity market. So one of the themes that we've

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Speaker 1: been looking to that's been kind of buried beneath the

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Speaker 1: surface the last few years, there's been this re on

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Speaker 1: shoring theme. So it became very prominent in the early

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Speaker 1: days of COVID with supply chain problems, sort of got

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Speaker 1: breast beneath the carpet, and it's back. If you look

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Speaker 1: in the chemical industry, there's been big job gains. You

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Speaker 1: look at these big announcements in terms of chip companies,

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Speaker 1: we think there's some interesting opportunities there in terms of

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Speaker 1: industrial and manufacturing. The second theme we're looking at as

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Speaker 1: the migration of technology into business. That's something that's been

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Speaker 1: unfolding a bit. We think it will accelerate with some

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Speaker 1: of the decline and employment in the tech sector and

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Speaker 1: those folks moving out into real industry. So we think

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Speaker 1: there are some exciting things happening where wealth can compound

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Speaker 1: over time. All Right, we're still waiting to hear from

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Speaker 1: President Biden. We have this live shot of the White

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Speaker 1: House and uh, Um, he's supposed to come on at ten.

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Speaker 1: Here we are at ten thirty three, still no sign

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Speaker 1: of him. But when he comes, we'll bring you live comments.

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Speaker 1: Series has some comments on the economy and inflation. Uh

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Speaker 1: print today. Um. You know, the definition of insanity is

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Speaker 1: continuing to do the same thing and expecting a different outcome. Right,

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Speaker 1: I don't know why we expect President Biden to come

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Speaker 1: out on time, and then we had a White House

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Speaker 1: give us the two minute warning like five minutes ago.

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Speaker 1: But that happens all the time, and he's constantly late.

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Speaker 1: No offense to him, and he's got a lot to do.

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Speaker 1: It's a busy guy. He's very busy. But I'm just

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Speaker 1: saying for us, as we're lining the shows, we're producing this,

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Speaker 1: you know, as we're planning things, Eric, we should note

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Speaker 1: that President Biden is always like thirty to forty minutes

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Speaker 1: late at least. And that's why Eric keeps us. He

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Speaker 1: just says, keep going, keep going. I want to talk

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Speaker 1: about reets, Jay, I know you guys have an in

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Speaker 1: for CAP preferred E t F. Talk to us about

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Speaker 1: the reach space and just kind of as we walk

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Speaker 1: in hands on the energy sector. Right, what's up? That's

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Speaker 1: a ret that leans on the energy set you are

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Speaker 1: preferred stock stock. Now as I walk through Midtown Manhattan

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Speaker 1: and I look at all these beautiful buildings, they're empty.

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Speaker 1: What am I doing with reats? What am I doing

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Speaker 1: with real estate? Well, the exposure and that fund is

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Speaker 1: pretty limited on office. Having said that, um surprisingly a

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Speaker 1: office even in Manhattan is going upward doing well. It's

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Speaker 1: really the B offices they're getting smashed. This is in

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Speaker 1: my office here, I'm sitting in right. Everything else on

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Speaker 1: the Lexington Avenue corridor is B is it if not

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Speaker 1: C or D right, So that's going to get redeveloped.

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Speaker 1: But the good thing about reads is that they're not

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Speaker 1: very levered and they have long term leases. So by

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Speaker 1: the time all those leases expired, there will have been

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Speaker 1: movement out of the B space and conversions to probably residential.

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Speaker 1: So they're under levered credits that survived well during cycles.

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Speaker 1: And that's really the investment bankers rarely what I give

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Speaker 1: them credit. But they didn't want to sell, which formally

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Speaker 1: was but I reformed, but they've actually required. We made

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Speaker 1: a pitch when I was investment banker to one of

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Speaker 1: our clients to be a read and I said, oh,

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Speaker 1: let's put six leverage on it, and they said no, no, no,

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Speaker 1: this has to be full cycle because we're gonna sell

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Speaker 1: it to retail, so it's only leverage. So surprisingly, they're

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Speaker 1: they're really good credits even when they're pressured like in cycles. Now,

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Speaker 1: in terms of you know, I always think of the

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Speaker 1: housing market here is driving consumer wealth and I was

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Speaker 1: lucky enough to get in right at the top. Um,

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Speaker 1: do we see that as a real problem, Bob, because no,

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Speaker 1: nobody seems that we're wried about it. We've seen a

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Speaker 1: substantial drop in prices, and a bigger drop has been

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Speaker 1: forecast by some boys who cried wolf. I guess is

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Speaker 1: it is? It not as bad as had been expected.

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Speaker 1: I think there are a few influences, So one is

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Speaker 1: that it it is bad in terms of there's been

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Speaker 1: a big slowdown in terms of activity, which will delete

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Speaker 1: some economic growth and is one of the underlying cycles

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Speaker 1: in the economy. So the slowdown in housing with rates

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Speaker 1: where they are right now, is something that that really

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Speaker 1: will be a headwind for the economy. I think in

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Speaker 1: terms of house pricing and wealth effect, it's similar to

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Speaker 1: the equity market. If you look at it in isolation

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Speaker 1: over last year, it's a challenge and a problem, but

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Speaker 1: when you look back over the past few years, not

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Speaker 1: so bad. So I think if you wait that out,

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Speaker 1: you have some people who will certainly be underwater on prices,

429
00:22:43,200 --> 00:22:45,560
Speaker 1: a little bit of declining wealth effect, but by and large,

430
00:22:45,560 --> 00:22:47,520
Speaker 1: over and reasonable period of time, that's not been a

431
00:22:47,520 --> 00:22:49,560
Speaker 1: big problem yet. So that's one of the reasons why

432
00:22:49,560 --> 00:22:52,080
Speaker 1: it's important to get inflation under control, hopefully get mortgage

433
00:22:52,119 --> 00:22:53,959
Speaker 1: rates under control, maybe back a little bit lower as

434
00:22:53,960 --> 00:22:56,280
Speaker 1: we look ahead. All my problem is that you three

435
00:22:56,320 --> 00:22:58,879
Speaker 1: guys are all probably on the other side of my

436
00:22:59,000 --> 00:23:01,840
Speaker 1: guy Rick. He said, listen, if you want to send

437
00:23:01,880 --> 00:23:05,399
Speaker 1: your kids to like Ivy League schools or even just

438
00:23:05,560 --> 00:23:09,720
Speaker 1: college in America, um, you still need like way more income.

439
00:23:10,400 --> 00:23:12,359
Speaker 1: But he said, if you send them to school for

440
00:23:12,400 --> 00:23:15,840
Speaker 1: free in in Europe. My wife is from Spain, you're

441
00:23:15,880 --> 00:23:18,399
Speaker 1: good to go now, right, so just move back in

442
00:23:18,560 --> 00:23:20,639
Speaker 1: like fifteen years. That's what I want to do. But

443
00:23:20,720 --> 00:23:23,200
Speaker 1: my wife says we should give the kids the opportunity

444
00:23:23,600 --> 00:23:25,800
Speaker 1: to go to some of these expensive U S schools

445
00:23:25,840 --> 00:23:28,480
Speaker 1: because from her vantage point, the Europeans see this as

446
00:23:28,600 --> 00:23:33,000
Speaker 1: an amazing experience, like a social chance that you never

447
00:23:33,080 --> 00:23:37,280
Speaker 1: would have in a European lifetime. And I feel like

448
00:23:37,400 --> 00:23:40,560
Speaker 1: that's just I'm throwing away like a Rolls Royce culling

449
00:23:40,640 --> 00:23:43,080
Speaker 1: in if I send one of my kids to four

450
00:23:43,160 --> 00:23:45,800
Speaker 1: years of college in Americas. In investment, it's not expensed.

451
00:23:45,800 --> 00:23:48,120
Speaker 1: It's an investment, but it's just a party, right, Am

452
00:23:48,119 --> 00:23:50,679
Speaker 1: I wrong about that? You're not? I mean, you're not

453
00:23:50,720 --> 00:23:53,359
Speaker 1: too that far removed. Um Bob, what do I do

454
00:23:53,400 --> 00:23:57,000
Speaker 1: with bonds? I had historic losses in bonds last year,

455
00:23:57,000 --> 00:23:59,400
Speaker 1: and for an equity guy like me, when people tell

456
00:23:59,400 --> 00:24:01,399
Speaker 1: me that they've never see those kinds of losses, I'm like,

457
00:24:01,480 --> 00:24:05,200
Speaker 1: I'm all in, baby, you know, both hands buying bonds.

458
00:24:05,200 --> 00:24:07,199
Speaker 1: What do you guys doing in the fixing comark? I

459
00:24:07,200 --> 00:24:09,439
Speaker 1: think bonds do look pretty compelling here. And what's exciting

460
00:24:09,480 --> 00:24:11,119
Speaker 1: about it is that you don't have to stretch that

461
00:24:11,160 --> 00:24:13,080
Speaker 1: far to get a decent yield. So in the past

462
00:24:13,119 --> 00:24:15,040
Speaker 1: there was this, you know, stretch for yield. People were

463
00:24:15,040 --> 00:24:17,280
Speaker 1: willing to give up liquidity, they were willing to take

464
00:24:17,280 --> 00:24:19,560
Speaker 1: on all sorts of extra credit risk. You don't really

465
00:24:19,560 --> 00:24:21,560
Speaker 1: need to do that here, So that the assumption if

466
00:24:21,600 --> 00:24:23,800
Speaker 1: you walk in that that you can generate four to

467
00:24:23,880 --> 00:24:27,080
Speaker 1: five percent with relatively conservative fixed income, keep duration not

468
00:24:27,160 --> 00:24:29,200
Speaker 1: that long, don't take a lot of credit risk. Those

469
00:24:29,240 --> 00:24:32,440
Speaker 1: are decent returns. And so for institutional portfolios like endowments

470
00:24:32,440 --> 00:24:35,000
Speaker 1: and foundations that are targeting five percent spend rates, that

471
00:24:35,080 --> 00:24:36,840
Speaker 1: number is pretty close to that spend rate. It's a

472
00:24:36,840 --> 00:24:38,560
Speaker 1: good investment. So we think there will be some good

473
00:24:38,560 --> 00:24:40,560
Speaker 1: opportunities in fixed income and you don't have to get

474
00:24:40,560 --> 00:24:43,800
Speaker 1: too creative to pursue them. What will be you don't

475
00:24:43,800 --> 00:24:46,200
Speaker 1: think that they're already have they are now, So will

476
00:24:46,240 --> 00:24:48,720
Speaker 1: be good returns and fixed it Okay, I mean, j

477
00:24:49,280 --> 00:24:51,399
Speaker 1: if you see rates coming down, I mean did you

478
00:24:51,520 --> 00:24:54,359
Speaker 1: jump in at four in a quarter? Well, what we

479
00:24:54,480 --> 00:24:58,199
Speaker 1: jumped into was preferred stocks, So in fact that was

480
00:24:58,200 --> 00:24:59,920
Speaker 1: our call like a week and a half ago. But

481
00:25:00,080 --> 00:25:04,560
Speaker 1: still do prefer yes, but they're up like almost one

482
00:25:04,560 --> 00:25:06,960
Speaker 1: of our funds is up almost ten percent this year.

483
00:25:07,720 --> 00:25:11,400
Speaker 1: And so typically they're vaulatile securities. They get sold way

484
00:25:11,400 --> 00:25:13,760
Speaker 1: too much in the cycle because they have very low

485
00:25:13,800 --> 00:25:17,119
Speaker 1: default rates. So if you're they're definitely more vaulatile, but

486
00:25:17,280 --> 00:25:19,720
Speaker 1: less vaultile than stocks. So that's where we have been

487
00:25:19,760 --> 00:25:22,520
Speaker 1: suggesting to step in, and so far we've been right

488
00:25:22,600 --> 00:25:24,760
Speaker 1: this year. By the way, do you care that it

489
00:25:24,840 --> 00:25:29,360
Speaker 1: took Kevin McCarthy like fifteen votes to become the Speaker

490
00:25:29,400 --> 00:25:32,160
Speaker 1: of the House. Do you care that we could see

491
00:25:32,400 --> 00:25:36,320
Speaker 1: the debt ceiling come back as like an issue, certainly

492
00:25:36,359 --> 00:25:39,320
Speaker 1: for the media, but possibly for markets as well. Does

493
00:25:39,359 --> 00:25:41,800
Speaker 1: it matter to you as an investor? I mean, we

494
00:25:41,840 --> 00:25:45,080
Speaker 1: think it's mildly positive because it's just indicative of gridlock,

495
00:25:45,720 --> 00:25:48,000
Speaker 1: and we're not big. We don't think that the U.

496
00:25:48,119 --> 00:25:51,560
Speaker 1: S economy is driven by government spending, particularly federal government spending,

497
00:25:52,040 --> 00:25:54,760
Speaker 1: so we think it's somewhat polish, even though the market

498
00:25:54,840 --> 00:25:57,600
Speaker 1: might trade off if there's a debt ceiling. I was hoping,

499
00:25:57,640 --> 00:26:02,240
Speaker 1: Bob he would say it's a concern because because the well,

500
00:26:02,400 --> 00:26:04,800
Speaker 1: I wasn't hoping, but I was thinking that, you know,

501
00:26:04,920 --> 00:26:07,880
Speaker 1: it's a problem if you can't pass a budget, if

502
00:26:08,040 --> 00:26:13,320
Speaker 1: the US government defaults, which seems like crazy, but I'm

503
00:26:13,359 --> 00:26:16,320
Speaker 1: looking at Washington and they're crazy, you know. Is it

504
00:26:16,359 --> 00:26:19,679
Speaker 1: a possibility. It's a possibility that will certainly create a

505
00:26:19,720 --> 00:26:22,080
Speaker 1: lot of volatilities. We get closer to that date, which

506
00:26:22,119 --> 00:26:24,920
Speaker 1: is somewhere out in the August September time frame, we've

507
00:26:24,960 --> 00:26:26,880
Speaker 1: seen this movie before. So we've been through it. It's

508
00:26:26,880 --> 00:26:30,240
Speaker 1: generated volatility before and we've gotten past it. So I'm

509
00:26:30,240 --> 00:26:31,960
Speaker 1: in the same campus as Jay in terms of good

510
00:26:32,040 --> 00:26:34,720
Speaker 1: luck is good on the policy of standfront. You know

511
00:26:34,800 --> 00:26:37,240
Speaker 1: what you're dealing with as a as a company management team.

512
00:26:37,480 --> 00:26:39,520
Speaker 1: But whenever you think about the debt ceiling and things

513
00:26:39,560 --> 00:26:41,919
Speaker 1: like that, that does have the potential to create volatility

514
00:26:41,920 --> 00:26:44,080
Speaker 1: and probably will and we see it coming. Did you

515
00:26:44,119 --> 00:26:47,119
Speaker 1: see did see Levine yesterday? Matt Levine? Yes? On the

516
00:26:47,160 --> 00:26:50,960
Speaker 1: debt ceiling. His story starts out the dumbest thing in economics,

517
00:26:51,080 --> 00:26:55,080
Speaker 1: the US government's debt ceiling. Yes, exactly. Uh, you have

518
00:26:55,160 --> 00:26:58,000
Speaker 1: money stuff. Matt Levin's money stuff is must read every day.

519
00:26:58,000 --> 00:27:00,359
Speaker 1: I have an alert set up. He's talking about premium bonds.

520
00:27:00,400 --> 00:27:03,560
Speaker 1: He thinks they should issue premium by so like a

521
00:27:03,640 --> 00:27:06,800
Speaker 1: bond that yields like sixteen per cent, but instead of

522
00:27:06,800 --> 00:27:08,800
Speaker 1: selling it for face value, they sell it to you

523
00:27:08,840 --> 00:27:12,119
Speaker 1: for double that. Right, because the dead ceiling, apparently the

524
00:27:12,240 --> 00:27:15,000
Speaker 1: law says it's all about the face value of the

525
00:27:15,040 --> 00:27:18,280
Speaker 1: dead issue. They don't care about the interest expenses. And

526
00:27:18,480 --> 00:27:20,320
Speaker 1: even I guess the premium would be okay for the

527
00:27:20,320 --> 00:27:22,760
Speaker 1: Treasury to pocket yeah, I mean so good stuff. I

528
00:27:22,800 --> 00:27:28,840
Speaker 1: always recommend reading his stuff. Laura Martin is a senior

529
00:27:28,880 --> 00:27:31,480
Speaker 1: media analyst at Native and Company. She's been on the

530
00:27:31,520 --> 00:27:34,960
Speaker 1: street for decades, covering the entire evolution of the media

531
00:27:35,000 --> 00:27:37,399
Speaker 1: and the TMT space. She joins U here in a

532
00:27:37,400 --> 00:27:39,639
Speaker 1: Bloomberg Interactive broker studio. Were so glad to see you're

533
00:27:39,640 --> 00:27:41,080
Speaker 1: based in l A but here in New York because

534
00:27:41,080 --> 00:27:42,760
Speaker 1: you guys had a conference, right we did. We had

535
00:27:42,760 --> 00:27:45,600
Speaker 1: a big the need Um Annual need Hum Growth Conference

536
00:27:45,640 --> 00:27:48,119
Speaker 1: this week. I had twenty two CEOs on stage real

537
00:27:48,160 --> 00:27:52,119
Speaker 1: time talking about the end of the year outlook, super

538
00:27:52,160 --> 00:27:54,760
Speaker 1: interesting stuff. What were some of the key takeaways for you?

539
00:27:54,840 --> 00:27:57,800
Speaker 1: For you? So for me? So mostly out driven firms

540
00:27:57,920 --> 00:28:01,080
Speaker 1: and as you know, advertising firms are down fifty last

541
00:28:01,119 --> 00:28:04,240
Speaker 1: year had a horrible year. Look. I think estimates are

542
00:28:04,400 --> 00:28:06,480
Speaker 1: low enough. I think first quarter is going to be weak.

543
00:28:06,560 --> 00:28:08,520
Speaker 1: I think fourth quarter, Paul, for the first time you

544
00:28:08,520 --> 00:28:10,560
Speaker 1: were meeting analysts with me twenty years ago when we

545
00:28:10,600 --> 00:28:13,280
Speaker 1: first were first Boston, and for the first quarter, like

546
00:28:13,440 --> 00:28:15,200
Speaker 1: fourth quarter didn't show up. Some guys are going to

547
00:28:15,280 --> 00:28:18,120
Speaker 1: report a lower fourth quarter than third quarter. But it's

548
00:28:18,160 --> 00:28:19,879
Speaker 1: in the which you and I have never seen before

549
00:28:20,160 --> 00:28:22,520
Speaker 1: as media people. But I think it's in the estimates.

550
00:28:22,560 --> 00:28:25,240
Speaker 1: I think that we don't have more estimate revisions downwards.

551
00:28:25,280 --> 00:28:27,080
Speaker 1: So I think I'm hopeful for the second half of

552
00:28:27,119 --> 00:28:30,480
Speaker 1: this year that UM stocks rebound towards the second half

553
00:28:30,480 --> 00:28:33,080
Speaker 1: of this year with an outlook for earnings stabilization and

554
00:28:33,200 --> 00:28:36,120
Speaker 1: ups in the second half and next year. So you're

555
00:28:36,160 --> 00:28:39,280
Speaker 1: not just looking at reports and you know, reading notes,

556
00:28:39,320 --> 00:28:42,840
Speaker 1: you actually talk to the CEOs of these companies. At

557
00:28:42,880 --> 00:28:47,520
Speaker 1: the Needham conference in Vegas, you met with CEOs there,

558
00:28:48,560 --> 00:28:52,080
Speaker 1: what what are What is their sentiment like right now?

559
00:28:52,120 --> 00:28:55,120
Speaker 1: Because I feel like Wall Street is getting a little

560
00:28:55,120 --> 00:28:59,520
Speaker 1: bit more optimistic about three, a little bit less concerned

561
00:28:59,640 --> 00:29:02,520
Speaker 1: about FED, less concerned about a big recession, and certainly

562
00:29:02,560 --> 00:29:05,440
Speaker 1: less concerned about inflation. So so, and let me stay

563
00:29:05,560 --> 00:29:07,160
Speaker 1: stick to the AD driven parts of the business. I

564
00:29:07,160 --> 00:29:11,240
Speaker 1: think AD driven CEOs for for tell Um, expect On

565
00:29:11,320 --> 00:29:14,760
Speaker 1: are managing their cost structure towards an AD recession. None

566
00:29:14,800 --> 00:29:16,480
Speaker 1: of them will step up to the level you've just

567
00:29:16,560 --> 00:29:18,880
Speaker 1: asked about, which is an economic recession, because I dont

568
00:29:18,880 --> 00:29:20,760
Speaker 1: feel qualified to do that, but I think each of

569
00:29:20,760 --> 00:29:23,640
Speaker 1: them feels there is an AD recession as advertisers hold back,

570
00:29:23,720 --> 00:29:26,360
Speaker 1: waiting for consumer demand to show up before they spend

571
00:29:26,360 --> 00:29:29,040
Speaker 1: ad trying to drive consumer demand. So met there are

572
00:29:29,040 --> 00:29:30,959
Speaker 1: a million analysts out there on Wall Street and they

573
00:29:31,000 --> 00:29:33,720
Speaker 1: all have their earnings estimates and price targets and things

574
00:29:33,760 --> 00:29:36,760
Speaker 1: like that. Laura does that too, but she's different. She

575
00:29:36,840 --> 00:29:40,640
Speaker 1: thinks like way out of the box, um and lots

576
00:29:40,640 --> 00:29:42,240
Speaker 1: of big themes. A lot of her stuff I have

577
00:29:42,280 --> 00:29:44,040
Speaker 1: to read two or three times to figure out kind

578
00:29:44,040 --> 00:29:45,880
Speaker 1: of what she's saying. But it's way out there. What

579
00:29:45,920 --> 00:29:47,720
Speaker 1: are some of yours? So I'm inarticulate. This is what

580
00:29:47,760 --> 00:29:50,479
Speaker 1: I've just learned to know. You're a big picture You're

581
00:29:50,480 --> 00:29:53,440
Speaker 1: a big picture person, which, by the way, so here's

582
00:29:53,440 --> 00:29:56,520
Speaker 1: a question then, um on a on a bigger picture

583
00:29:56,600 --> 00:29:58,720
Speaker 1: thought that I've had for some time. Paul hates it

584
00:29:58,720 --> 00:30:01,400
Speaker 1: when people work from home. To him, that's the bane

585
00:30:01,440 --> 00:30:05,160
Speaker 1: of his existence. And I feel like this is the future,

586
00:30:05,440 --> 00:30:08,120
Speaker 1: because we're all gonna live in the metaverse and be

587
00:30:08,200 --> 00:30:11,200
Speaker 1: plugged in and never have to leave our little pads.

588
00:30:12,200 --> 00:30:15,160
Speaker 1: I feel like the one beneficiary of that should be

589
00:30:15,400 --> 00:30:21,480
Speaker 1: the company that's named Meta, and they've been absolutely crushed

590
00:30:21,920 --> 00:30:25,680
Speaker 1: as well. So why isn't that a long term buy

591
00:30:25,800 --> 00:30:32,240
Speaker 1: for you has underperformed the only ones UM so so

592
00:30:32,400 --> 00:30:34,880
Speaker 1: meta we're particularly worried about, and we do have an

593
00:30:34,920 --> 00:30:37,200
Speaker 1: underperform which is rare on the street. I think there's

594
00:30:37,200 --> 00:30:40,080
Speaker 1: fifty five by UM And I think what we're saying is,

595
00:30:40,520 --> 00:30:42,800
Speaker 1: I think the question we are raising that we think

596
00:30:42,800 --> 00:30:46,000
Speaker 1: investors need to think through is is there actually a

597
00:30:46,040 --> 00:30:49,200
Speaker 1: core business if TikTok isn't stopped. Yes, can you rely

598
00:30:49,280 --> 00:30:52,280
Speaker 1: on regulators to enter in band TikTok? You can absolutely

599
00:30:52,280 --> 00:30:55,040
Speaker 1: make a bet on that. However, if they aren't stopped,

600
00:30:55,080 --> 00:30:57,440
Speaker 1: because in my opinion, TikTok has a real business and

601
00:30:57,440 --> 00:31:00,240
Speaker 1: it will get bought by somebody rather than just go away.

602
00:31:00,440 --> 00:31:02,040
Speaker 1: So if they have a real business, it is unclear

603
00:31:02,080 --> 00:31:03,760
Speaker 1: to me what a social network is worth and whether

604
00:31:03,800 --> 00:31:07,880
Speaker 1: it has any exit multiple if if TikTok keeps eating

605
00:31:07,880 --> 00:31:10,000
Speaker 1: the world, but don't you separate that from their ambitions.

606
00:31:10,000 --> 00:31:11,760
Speaker 1: I mean, social networks are a flash in the pan.

607
00:31:11,880 --> 00:31:16,400
Speaker 1: We had frends Tour, we had my Space is pretty gross.

608
00:31:16,440 --> 00:31:19,360
Speaker 1: I think we can all agree, Um, you've got Instagram

609
00:31:19,400 --> 00:31:22,200
Speaker 1: and TikTok that are hot right now. But the important

610
00:31:22,200 --> 00:31:25,479
Speaker 1: thing for me is the metaverse. Aren't they buying, you know,

611
00:31:25,760 --> 00:31:30,040
Speaker 1: and building this huge metaverse company. So let's go back

612
00:31:30,040 --> 00:31:31,320
Speaker 1: to say, I'm going to tie that into your C

613
00:31:31,440 --> 00:31:33,640
Speaker 1: E S question because C E S for the first

614
00:31:33,680 --> 00:31:35,560
Speaker 1: time ever, and I didn't skip a C E S

615
00:31:35,600 --> 00:31:37,240
Speaker 1: if it was on, I drove from l A to

616
00:31:37,280 --> 00:31:40,480
Speaker 1: see it had a metaverse section. First time ever metaverse

617
00:31:40,520 --> 00:31:42,800
Speaker 1: included like the PlayStation. I don't know what you guys think.

618
00:31:42,800 --> 00:31:45,160
Speaker 1: I don't think the PlayStation, which is a hardware based

619
00:31:45,160 --> 00:31:47,880
Speaker 1: console game system, is the metaverse. The problem is there's

620
00:31:47,880 --> 00:31:50,160
Speaker 1: four companies in it. There's four booths in the metaverse.

621
00:31:50,480 --> 00:31:52,800
Speaker 1: So I think the metaverse, first of all, no one

622
00:31:52,840 --> 00:31:54,880
Speaker 1: defines it the same. What you think you're asking me

623
00:31:54,880 --> 00:31:57,440
Speaker 1: a metaverse is probably not what I think metaverse is.

624
00:31:57,720 --> 00:32:00,200
Speaker 1: As it pause, everybody has a new definition of it.

625
00:32:00,480 --> 00:32:02,360
Speaker 1: A lot of AI and a lot of AI. I

626
00:32:02,360 --> 00:32:05,160
Speaker 1: think is the metaverse coming out of C E S.

627
00:32:05,200 --> 00:32:07,760
Speaker 1: I think what was really important for media as media

628
00:32:07,800 --> 00:32:10,960
Speaker 1: analysts were pollen I started in the world is screens

629
00:32:11,080 --> 00:32:14,280
Speaker 1: everywhere Japan. You know, they haven't been replacing their population,

630
00:32:14,360 --> 00:32:16,480
Speaker 1: so they're making these little robots that look by people.

631
00:32:16,560 --> 00:32:19,640
Speaker 1: Their face has a screen. Because it's sad it listens

632
00:32:19,680 --> 00:32:21,880
Speaker 1: to you, it emotes. Guess what, there's gonna be an

633
00:32:21,920 --> 00:32:24,480
Speaker 1: ad on that screen someday to lower the cause. Right now,

634
00:32:24,480 --> 00:32:27,320
Speaker 1: those robots are three thousand dollars a month. What why

635
00:32:27,320 --> 00:32:29,240
Speaker 1: doesn't Coke put a little coke bottle on the bottom

636
00:32:29,280 --> 00:32:31,120
Speaker 1: of every one of those screens and perpetuity and pay

637
00:32:31,160 --> 00:32:33,720
Speaker 1: the company ten million dollars a year. What a great idea.

638
00:32:33,920 --> 00:32:35,880
Speaker 1: There's screens on their bellies so that you can push,

639
00:32:35,960 --> 00:32:39,440
Speaker 1: you know, call emergency response or get me a coke,

640
00:32:39,520 --> 00:32:41,720
Speaker 1: and the robotos and get you their screens on the belly.

641
00:32:42,040 --> 00:32:45,000
Speaker 1: The point is in cars and in these new robotics,

642
00:32:45,040 --> 00:32:47,000
Speaker 1: a lot of robotics on the floor of c e s,

643
00:32:47,120 --> 00:32:49,200
Speaker 1: they all have screens. And if they have a screen,

644
00:32:49,400 --> 00:32:51,840
Speaker 1: and advertisers going to figure out a way to subsidize

645
00:32:51,840 --> 00:32:56,520
Speaker 1: the consumer payment for that physical asset forever, because that's

646
00:32:56,560 --> 00:32:58,840
Speaker 1: just smart marketing. Put it, you know, put a water

647
00:32:58,880 --> 00:33:01,000
Speaker 1: mark on it. It's already hapening right The screen in

648
00:33:01,040 --> 00:33:03,440
Speaker 1: my car says Google right on it all the time.

649
00:33:03,800 --> 00:33:05,920
Speaker 1: It's got a Spotify button for me to click. I

650
00:33:05,920 --> 00:33:10,440
Speaker 1: don't even use Okay, yeah, I'm sure, I just you know,

651
00:33:10,640 --> 00:33:13,520
Speaker 1: you're right about the metaverse. My definition is much broader

652
00:33:13,520 --> 00:33:16,360
Speaker 1: than probably I think the Zoom is already in the metaverse.

653
00:33:16,400 --> 00:33:19,200
Speaker 1: You know, they're pretty Fortnight in the metaverse. Now everybody's

654
00:33:19,200 --> 00:33:21,320
Speaker 1: like Fortnight it's a metaverse company. I'm like, okay, I

655
00:33:21,320 --> 00:33:24,200
Speaker 1: think it's a mobile game company. But okay, so I

656
00:33:24,200 --> 00:33:27,160
Speaker 1: don't know. The most interesting I would say, look my

657
00:33:27,320 --> 00:33:29,320
Speaker 1: deliverable when I go to c e S. Because they're

658
00:33:29,360 --> 00:33:31,680
Speaker 1: showing stuff three years from now, is does it raise

659
00:33:31,720 --> 00:33:33,680
Speaker 1: a question for me that I've never thought of in

660
00:33:33,720 --> 00:33:36,360
Speaker 1: my life? And that's pretty hard high standard. It did

661
00:33:36,760 --> 00:33:39,080
Speaker 1: because one of the things they're showing in you might

662
00:33:39,120 --> 00:33:41,840
Speaker 1: call it the metaverse they're putting under AI. So artificial

663
00:33:41,840 --> 00:33:47,760
Speaker 1: intelligence is if you upload videos and letters and um

664
00:33:47,800 --> 00:33:51,800
Speaker 1: audio tapes, that AI will render your dead loved one.

665
00:33:51,880 --> 00:33:54,200
Speaker 1: And they have programmed the AI to answer the top

666
00:33:54,320 --> 00:33:57,920
Speaker 1: ten thousand questions so you can talk to your your

667
00:33:58,240 --> 00:34:00,960
Speaker 1: dead mother, your dead sister. There's a movie about that

668
00:34:01,000 --> 00:34:05,040
Speaker 1: already in in re answering questions for you in their cadence,

669
00:34:05,120 --> 00:34:08,520
Speaker 1: in their accent, in their person as an avatar. Like,

670
00:34:08,640 --> 00:34:11,800
Speaker 1: it raises the question, just because technology can do something,

671
00:34:12,080 --> 00:34:14,319
Speaker 1: should it? Should it do something? All right, let's go

672
00:34:14,400 --> 00:34:16,640
Speaker 1: back to something a little bit more on the earth.

673
00:34:17,040 --> 00:34:20,719
Speaker 1: In the Earth, Nelson Belts has taken a position in

674
00:34:20,760 --> 00:34:23,480
Speaker 1: the Walt Disney Company. What's your Disney call? Right here?

675
00:34:23,560 --> 00:34:27,000
Speaker 1: Bob Eiger coming back, our old buddy, what's your Disney

676
00:34:27,000 --> 00:34:29,520
Speaker 1: call here? So my Disney call is I think Bob

677
00:34:29,520 --> 00:34:32,640
Speaker 1: igor is best in class at managing people both down

678
00:34:32,880 --> 00:34:37,160
Speaker 1: and I think yum and I think up. So I

679
00:34:37,200 --> 00:34:39,040
Speaker 1: think that we're going to get a lot less drama

680
00:34:39,120 --> 00:34:40,799
Speaker 1: at the Walt Disney Company, which I think is good

681
00:34:40,800 --> 00:34:43,000
Speaker 1: for a content company. You know, Paul, they don't have

682
00:34:43,000 --> 00:34:46,759
Speaker 1: a content Their content revenue is in other under the

683
00:34:46,920 --> 00:34:50,359
Speaker 1: under Bob shapeck like how dismissive of what is the

684
00:34:50,360 --> 00:34:53,080
Speaker 1: core business there that they build all of their other

685
00:34:53,120 --> 00:34:55,759
Speaker 1: economic engines around. So I think we get a refocus

686
00:34:55,880 --> 00:34:59,360
Speaker 1: on content, which I think is deserved. Um and I

687
00:34:59,360 --> 00:35:02,480
Speaker 1: think he sells. I think the Walt Disney Company has

688
00:35:02,520 --> 00:35:05,560
Speaker 1: been very unsuccessful like succession planning, and I think it's

689
00:35:05,560 --> 00:35:07,640
Speaker 1: a hard job. It's almost an impossib job. It's like

690
00:35:07,680 --> 00:35:10,680
Speaker 1: running a government in terms of the brand stringency. So

691
00:35:10,719 --> 00:35:12,400
Speaker 1: I think Apple buys them. I think that is a

692
00:35:12,480 --> 00:35:18,440
Speaker 1: good home. Do you think Apple for years that Apple Disney. Yes,

693
00:35:18,480 --> 00:35:20,439
Speaker 1: and he has said if Steve Jobs had not died,

694
00:35:20,520 --> 00:35:22,400
Speaker 1: I would because he was on his board right he

695
00:35:22,560 --> 00:35:24,400
Speaker 1: I would have sold Disney to Apple. That is a

696
00:35:24,440 --> 00:35:27,120
Speaker 1: good fit. The government will make sure Apple says you

697
00:35:27,120 --> 00:35:30,200
Speaker 1: can't make your content exclusive. That's smart for ten years

698
00:35:30,239 --> 00:35:32,800
Speaker 1: like they did with NBC, you can't make this content exclusive.

699
00:35:32,840 --> 00:35:35,600
Speaker 1: When Comcast bought MBC, so for you know, ten or

700
00:35:35,600 --> 00:35:38,280
Speaker 1: twenty years, Apple won't be able to make Disney content exclusive.

701
00:35:38,320 --> 00:35:39,880
Speaker 1: But at the end of the day, that is a

702
00:35:39,920 --> 00:35:42,759
Speaker 1: good home. We've got a billion of the wealthiest consumers

703
00:35:42,760 --> 00:35:45,520
Speaker 1: on Earth in the Apple ecosystem, and the brands are

704
00:35:45,520 --> 00:35:48,360
Speaker 1: completely brand consistent. And I just don't think there's a

705
00:35:48,360 --> 00:35:50,360
Speaker 1: person out there that can run the Walt Disney company.

706
00:35:50,640 --> 00:35:52,560
Speaker 1: It's just too hard. Well, I thought we had I

707
00:35:52,600 --> 00:35:55,040
Speaker 1: thought we had a perfect set up with Tom Stags too.

708
00:35:55,440 --> 00:35:58,000
Speaker 1: I'm such a Tom Stags, I know. And then he

709
00:35:59,239 --> 00:36:01,560
Speaker 1: Bob Biker's got so many wonderful things on his resume,

710
00:36:01,640 --> 00:36:05,680
Speaker 1: just NonStop, but a huge failure is the lack of succession,

711
00:36:06,360 --> 00:36:09,560
Speaker 1: his inability. I agree, and it hurts his legacy because

712
00:36:09,600 --> 00:36:12,040
Speaker 1: as a as a general manager, you need to have

713
00:36:12,160 --> 00:36:15,080
Speaker 1: a bench and a succession plan. And by the way,

714
00:36:15,080 --> 00:36:17,080
Speaker 1: I blame the board more than I blame Bob. Bob's

715
00:36:17,120 --> 00:36:20,080
Speaker 1: just a great execution guy. But in fairness, like if

716
00:36:20,080 --> 00:36:22,440
Speaker 1: you're you got to think about the next hundred years,

717
00:36:22,600 --> 00:36:26,759
Speaker 1: not just like while you're inten your slight. He tried right, well, no,

718
00:36:27,600 --> 00:36:29,440
Speaker 1: wouldn't give up power, simple as that. And then when

719
00:36:29,480 --> 00:36:31,319
Speaker 1: he did give up power, he didn't really give up power.

720
00:36:31,320 --> 00:36:33,680
Speaker 1: He kind of undermine Bob Jacob. All right, what's the

721
00:36:33,719 --> 00:36:37,800
Speaker 1: one thing we're not thinking about that you're thinking about? Um?

722
00:36:37,840 --> 00:36:41,080
Speaker 1: Streaming has ruined the economics of the media business. We're

723
00:36:41,080 --> 00:36:43,640
Speaker 1: down to one window, right, if we don't have box office,

724
00:36:43,640 --> 00:36:45,800
Speaker 1: we have a single window. When you and I covered media,

725
00:36:45,840 --> 00:36:48,040
Speaker 1: it was seven windows. You know what a good economic

726
00:36:48,080 --> 00:36:51,000
Speaker 1: model is seven windows where you have ticket sales and

727
00:36:51,040 --> 00:36:54,200
Speaker 1: your video games, then you have streaming, then you have broadcasts.

728
00:36:54,360 --> 00:36:57,640
Speaker 1: We need more windows back otherwise the return on content

729
00:36:57,719 --> 00:36:59,560
Speaker 1: spending is going to be negative as it is today.

730
00:36:59,560 --> 00:37:01,120
Speaker 1: How do we how do we do that? Because when

731
00:37:01,320 --> 00:37:03,520
Speaker 1: you and I, you know, we're covering these names. Even

732
00:37:03,560 --> 00:37:06,240
Speaker 1: ten years ago, a network would spend a billion, two billion,

733
00:37:06,239 --> 00:37:09,000
Speaker 1: three billion dollars on content. Now they're spending twelve fifteen,

734
00:37:09,000 --> 00:37:11,560
Speaker 1: seventeen billion dollars on content. Oh, by the way, and

735
00:37:11,560 --> 00:37:13,359
Speaker 1: I don't I don't know where the revenue stream is going.

736
00:37:13,600 --> 00:37:15,239
Speaker 1: And I guess that's kind of the conundrum for these

737
00:37:15,280 --> 00:37:17,240
Speaker 1: media companies. My costs have gone up, but I don't

738
00:37:17,160 --> 00:37:19,480
Speaker 1: know where my revenue is coming from. Well, I'm going

739
00:37:19,560 --> 00:37:21,120
Speaker 1: to answer that, but I also want to tell you,

740
00:37:21,239 --> 00:37:24,080
Speaker 1: by the way, all these streamers don't have talent back ends.

741
00:37:24,120 --> 00:37:26,080
Speaker 1: So the talents about to go on strike in Hollywood

742
00:37:26,080 --> 00:37:29,160
Speaker 1: where I live because they don't. They're watching their traditional

743
00:37:29,200 --> 00:37:31,959
Speaker 1: business go to zero and they don't have back ends

744
00:37:32,080 --> 00:37:34,239
Speaker 1: and meaning they don't have an annuity stream after they

745
00:37:34,320 --> 00:37:36,919
Speaker 1: produce the content. So they're going to strike because there's

746
00:37:36,920 --> 00:37:39,240
Speaker 1: sort of nothing to lose for them. So the content

747
00:37:39,320 --> 00:37:41,640
Speaker 1: costs that we've been paying for streaming is actually cheaper

748
00:37:41,640 --> 00:37:43,920
Speaker 1: than it's about to be because talent is gonna want

749
00:37:43,920 --> 00:37:46,120
Speaker 1: to have a back end residual like they do in

750
00:37:46,480 --> 00:37:49,040
Speaker 1: music and like they do in the film. Makes sense,

751
00:37:49,440 --> 00:37:51,560
Speaker 1: So these costs are about to go up for streaming.

752
00:37:51,640 --> 00:37:54,120
Speaker 1: So the answer is you have to have consolidation. The

753
00:37:54,120 --> 00:37:56,759
Speaker 1: thing I am most excited about that everybody's missing, I

754
00:37:56,800 --> 00:37:59,360
Speaker 1: think is John Malone is back in the media business

755
00:37:59,400 --> 00:38:01,600
Speaker 1: because he had give up a super voting rights and

756
00:38:01,640 --> 00:38:04,560
Speaker 1: discovery and so now he's on the board and zaslavs

757
00:38:04,880 --> 00:38:08,080
Speaker 1: you know that Zaslov team of execution, and Malone's genius

758
00:38:08,280 --> 00:38:10,439
Speaker 1: of how to make money in an ecosystem, I think

759
00:38:10,520 --> 00:38:13,239
Speaker 1: is one of the most I expect economic rationality to

760
00:38:13,280 --> 00:38:16,120
Speaker 1: come back. The Darth Vader of cable is coming back

761
00:38:16,239 --> 00:38:18,680
Speaker 1: in the stream to make money, to make money, because

762
00:38:18,719 --> 00:38:20,560
Speaker 1: we are not going to fund this anymore. We Wall

763
00:38:20,600 --> 00:38:22,960
Speaker 1: Street have said you must make money, and streaming has

764
00:38:23,000 --> 00:38:24,920
Speaker 1: been set up to not make money, and it's cost

765
00:38:24,960 --> 00:38:26,640
Speaker 1: You're about to go up because talent wants to share.

766
00:38:26,880 --> 00:38:28,680
Speaker 1: Let's talk about Apple a little bit more because you

767
00:38:28,719 --> 00:38:33,759
Speaker 1: like Apple, and um, they are getting ready to grow

768
00:38:33,840 --> 00:38:36,880
Speaker 1: into some pretty interesting places. They want to get into

769
00:38:37,160 --> 00:38:39,680
Speaker 1: what is augmented reality. I think they're putting out like

770
00:38:39,800 --> 00:38:42,440
Speaker 1: some kind of glasses or headset this year at least,

771
00:38:42,480 --> 00:38:46,239
Speaker 1: as a Mark German tells us. And they're gonna put

772
00:38:46,239 --> 00:38:49,480
Speaker 1: out a car now if they buy Walt Disney there

773
00:38:49,480 --> 00:38:52,240
Speaker 1: and pretty much everything. What what's the what's the future

774
00:38:52,280 --> 00:38:55,279
Speaker 1: look like for Apple? So I think Apple has made

775
00:38:55,320 --> 00:38:57,560
Speaker 1: so as you know, when you do the work, your

776
00:38:57,600 --> 00:39:01,200
Speaker 1: customers are your revenue. That to what Apple specializes in.

777
00:39:01,239 --> 00:39:05,480
Speaker 1: Twelve devices. A billion unique users have an iPhone worldwide.

778
00:39:05,600 --> 00:39:07,719
Speaker 1: That is the richest fifteen percent of and that is

779
00:39:07,760 --> 00:39:09,560
Speaker 1: the people who have eighty percent of the economics in

780
00:39:09,640 --> 00:39:12,920
Speaker 1: the world. Sad to say, but true. So anything that

781
00:39:13,040 --> 00:39:15,919
Speaker 1: they do, they have ninety billion dollars a year free

782
00:39:15,920 --> 00:39:19,440
Speaker 1: cash flow, which means no industry is safe unless Apple

783
00:39:19,480 --> 00:39:22,480
Speaker 1: just doesn't care. It's too small. They're going into cars.

784
00:39:22,680 --> 00:39:24,719
Speaker 1: That is hard work, you know, it's not hard work

785
00:39:24,960 --> 00:39:28,880
Speaker 1: selling ads to the top fifteen percent wealthiest consumers they got.

786
00:39:29,040 --> 00:39:31,560
Speaker 1: My my prediction is they will go into the ad

787
00:39:31,600 --> 00:39:35,759
Speaker 1: business in a big way. In they'll be very cautious.

788
00:39:35,800 --> 00:39:38,080
Speaker 1: It is a eight hundred billion dollar a year business

789
00:39:38,280 --> 00:39:41,640
Speaker 1: and it is easy to get into. There's established technology partners.

790
00:39:41,680 --> 00:39:43,640
Speaker 1: So they have to do it brand consistent because they

791
00:39:43,640 --> 00:39:45,879
Speaker 1: protect their brand at all costs. But it is an

792
00:39:45,880 --> 00:39:48,440
Speaker 1: eight hundred billion dollar revenue stream that that they have

793
00:39:48,719 --> 00:39:50,640
Speaker 1: can get partners and they don't need a car. That

794
00:39:50,680 --> 00:39:52,560
Speaker 1: doesn't have to take them three years, and it's a

795
00:39:52,680 --> 00:39:54,839
Speaker 1: it's eighty percent margins. As Paul and I know, why

796
00:39:54,880 --> 00:39:56,520
Speaker 1: haven't they gotten into the business you think, you know,

797
00:39:56,600 --> 00:39:58,880
Speaker 1: I think they think it's not brand consistent. And again,

798
00:39:59,200 --> 00:40:01,480
Speaker 1: like the Walt Disne your company that constantly asked what

799
00:40:01,520 --> 00:40:04,440
Speaker 1: would Walt Disney do and is gated by that decision,

800
00:40:05,160 --> 00:40:07,399
Speaker 1: Apple says what would Steve Jobs do? Well, he would

801
00:40:07,440 --> 00:40:10,239
Speaker 1: never have done advertising, So they really have to go

802
00:40:10,440 --> 00:40:13,359
Speaker 1: very I would say plotting the Amazon. Amazon has showed

803
00:40:13,400 --> 00:40:15,600
Speaker 1: that you can get big quickly, and you can get

804
00:40:15,680 --> 00:40:18,240
Speaker 1: thirty billion this year for Amazon, and Apple is starting

805
00:40:18,239 --> 00:40:20,319
Speaker 1: to break away because Steve Jobs would never have put

806
00:40:20,320 --> 00:40:22,319
Speaker 1: a touch screen in a laptop. That's true, they're going

807
00:40:22,360 --> 00:40:23,920
Speaker 1: to do that, but that's but they just are just

808
00:40:23,960 --> 00:40:26,399
Speaker 1: more deliberate when they're going against Steve Jobs. They are

809
00:40:26,440 --> 00:40:28,680
Speaker 1: just much more deliberate. But I think it is a

810
00:40:28,719 --> 00:40:31,120
Speaker 1: much better revenue stream and a higher margin and they

811
00:40:31,120 --> 00:40:33,800
Speaker 1: should be in the act. You care that I've learned

812
00:40:33,800 --> 00:40:36,560
Speaker 1: this year that Paul is very angry that they don't

813
00:40:36,560 --> 00:40:41,080
Speaker 1: pay a dividend. Do you care? Don't care? I don't care? Sorry,

814
00:40:41,320 --> 00:40:43,320
Speaker 1: I know, I just I would love a nice, saucy

815
00:40:43,360 --> 00:40:47,680
Speaker 1: two to three pc dividend yield. Uh think, yeah, you

816
00:40:47,680 --> 00:40:50,279
Speaker 1: can do both. They got cash flow, as you mentioned,

817
00:40:50,360 --> 00:40:52,359
Speaker 1: all right, since we got here. We're going right down

818
00:40:52,360 --> 00:40:55,719
Speaker 1: to your list. Alphabet, I mean digital advertising. It was

819
00:40:55,800 --> 00:40:58,560
Speaker 1: just on autopilot for more than a decade. It was

820
00:40:58,719 --> 00:41:01,480
Speaker 1: not so much now how do we think about alphabet,

821
00:41:01,520 --> 00:41:04,200
Speaker 1: but just kind of the digital advertising space. So I'll

822
00:41:04,239 --> 00:41:07,080
Speaker 1: answered both questions. So what I think, Paul is this,

823
00:41:07,160 --> 00:41:09,960
Speaker 1: you know, the search engine has like margins, and it's

824
00:41:10,000 --> 00:41:11,960
Speaker 1: my opinion that even including you to sort of the

825
00:41:12,000 --> 00:41:14,880
Speaker 1: rest of their business hobbies, nothing else makes money. Search

826
00:41:14,920 --> 00:41:17,759
Speaker 1: writes on a track. My view is that this this

827
00:41:17,840 --> 00:41:20,480
Speaker 1: ad recession which all my guys are calling for, is

828
00:41:20,520 --> 00:41:23,239
Speaker 1: going to allow Ruth, who's the CFO that comes from

829
00:41:23,239 --> 00:41:25,759
Speaker 1: Morgan Stanley, which is a mature, competitive business. It's gonna

830
00:41:25,760 --> 00:41:28,200
Speaker 1: allow her to cut costs. And it's about freaking time.

831
00:41:28,400 --> 00:41:30,120
Speaker 1: They need to get rid of some of these hobbies.

832
00:41:30,440 --> 00:41:32,400
Speaker 1: And we either they need to get rid of hobbies

833
00:41:32,480 --> 00:41:34,160
Speaker 1: or we need to take the share price down again

834
00:41:34,440 --> 00:41:37,279
Speaker 1: because they're not being they're not running a business, you know,

835
00:41:37,440 --> 00:41:40,360
Speaker 1: and Search is now underseach from this chat you know

836
00:41:40,600 --> 00:41:43,840
Speaker 1: AI thing and maybe being take syn rows. But the

837
00:41:43,840 --> 00:41:46,160
Speaker 1: point is if that's about to undermine their core competence,

838
00:41:46,160 --> 00:41:47,800
Speaker 1: they should be scared to death and they should be

839
00:41:47,840 --> 00:41:51,080
Speaker 1: cutting costs. So I'm hoping that we get business discipline

840
00:41:51,120 --> 00:41:53,640
Speaker 1: into Alphabet for the first time because they're scared about

841
00:41:53,640 --> 00:41:56,839
Speaker 1: an AD recession coupled with this AI threat. And Ruth

842
00:41:56,840 --> 00:41:58,680
Speaker 1: has probably wanted to cut costs for three years and

843
00:41:58,719 --> 00:42:01,280
Speaker 1: just hasn't been allowed to it. Like I mean, Amazon

844
00:42:01,560 --> 00:42:04,560
Speaker 1: under Bezos was always like they could turn the tap

845
00:42:04,760 --> 00:42:07,600
Speaker 1: and profits would flow out. They would do that occasionally

846
00:42:07,600 --> 00:42:10,560
Speaker 1: when Wall Street wanted to take the stock rights down. Um,

847
00:42:10,600 --> 00:42:12,440
Speaker 1: what is it like under Jase? Now, what do you

848
00:42:12,440 --> 00:42:15,000
Speaker 1: think about Amazon? So I think so Amazon, we are

849
00:42:15,040 --> 00:42:17,120
Speaker 1: writing that you should invest in the Red Cross rather

850
00:42:17,160 --> 00:42:19,320
Speaker 1: than Amazon because they have five d billion of revenue

851
00:42:19,320 --> 00:42:21,000
Speaker 1: and they have five billion of costs and they have

852
00:42:21,040 --> 00:42:23,759
Speaker 1: a million employees and they're making no money. And I

853
00:42:23,760 --> 00:42:26,080
Speaker 1: don't think that's a business. I think it's a hobby.

854
00:42:26,200 --> 00:42:29,800
Speaker 1: So I called Shenanigans under Jeff Bezos, okay, like every

855
00:42:29,800 --> 00:42:32,440
Speaker 1: time he spent lost a billion dollars, he would it

856
00:42:32,440 --> 00:42:34,120
Speaker 1: would turn into the cloud or would turn into the

857
00:42:34,160 --> 00:42:36,000
Speaker 1: ad business. But I don't think you get to just

858
00:42:36,080 --> 00:42:39,040
Speaker 1: transfer that goodwill from Wall Street to Andy Jaffee, who's

859
00:42:39,040 --> 00:42:41,200
Speaker 1: a different human being. I don't know what decisions he's

860
00:42:41,239 --> 00:42:44,080
Speaker 1: making in the five billion a quarter that he's spending

861
00:42:44,080 --> 00:42:46,160
Speaker 1: that don't make money. And Wall Street has changed its

862
00:42:46,160 --> 00:42:49,120
Speaker 1: mind this year, as you in, we want free cash flow.

863
00:42:49,560 --> 00:42:52,319
Speaker 1: And when you're a public company, sorry, Wall Street gets

864
00:42:52,360 --> 00:42:54,040
Speaker 1: to change its mind on a dime, even though you

865
00:42:54,080 --> 00:42:56,200
Speaker 1: think you're running a business for multi years. We have

866
00:42:56,320 --> 00:42:58,719
Speaker 1: changed our mind. We want free cash flow now. So

867
00:42:58,800 --> 00:43:01,239
Speaker 1: Jaffee eating it needs to business needs to go back

868
00:43:01,280 --> 00:43:03,160
Speaker 1: to basos and then maybe he'll get a pass to

869
00:43:03,200 --> 00:43:05,719
Speaker 1: not make money. If it's Jaffe in the seat. He

870
00:43:05,760 --> 00:43:08,520
Speaker 1: needs to make money like yesterday. So he's got a

871
00:43:08,520 --> 00:43:10,840
Speaker 1: million employees, he's not laying off fast enough. He's got

872
00:43:10,960 --> 00:43:13,160
Speaker 1: to cut costs faster in order to get the sharp

873
00:43:13,160 --> 00:43:15,480
Speaker 1: price up. In my opinion, there you go boom clear.

874
00:43:15,840 --> 00:43:17,680
Speaker 1: I mean you walk out of a meeting with law Martin.

875
00:43:17,719 --> 00:43:19,839
Speaker 1: You know exactly where she stands. So that was good

876
00:43:19,880 --> 00:43:22,239
Speaker 1: stuff law Martin. She's a senior media analysts that need

877
00:43:22,280 --> 00:43:24,319
Speaker 1: him in company based in l a here in New

878
00:43:24,400 --> 00:43:26,680
Speaker 1: York because they had their big need him company, uh

879
00:43:27,000 --> 00:43:31,319
Speaker 1: growth stock kind of conference in New York annual. All right,

880
00:43:31,360 --> 00:43:36,840
Speaker 1: good stuff, awesome. Let's bring in Sam Burns right now,

881
00:43:36,880 --> 00:43:40,040
Speaker 1: he's founder and chief strategist at Mill Street Research, to

882
00:43:40,120 --> 00:43:44,080
Speaker 1: talk about well this number, Sam, and you know the Fed,

883
00:43:44,360 --> 00:43:46,600
Speaker 1: what are they gonna do? How do you take the

884
00:43:46,640 --> 00:43:49,680
Speaker 1: inflation um? Are we getting back to a good place

885
00:43:49,680 --> 00:43:52,879
Speaker 1: and can the Fed kind of slow down? Ali? Thanks

886
00:43:52,880 --> 00:43:55,080
Speaker 1: for having me on, and yes, I think the inflation

887
00:43:55,120 --> 00:43:57,560
Speaker 1: numbers have definitely gotten a lot better over the last

888
00:43:57,600 --> 00:43:59,480
Speaker 1: day six months or so. Uh. You know, you look

889
00:43:59,480 --> 00:44:02,799
Speaker 1: at the six annualized rate of change of the CPI

890
00:44:02,880 --> 00:44:06,000
Speaker 1: and we're we're basically just below two percent now, So

891
00:44:06,040 --> 00:44:07,520
Speaker 1: we're back to where the Fed wants to see it

892
00:44:08,000 --> 00:44:10,960
Speaker 1: during the period that's the really captures when they've been

893
00:44:11,000 --> 00:44:13,800
Speaker 1: raising rates, and after the you know that the commodity

894
00:44:13,880 --> 00:44:16,560
Speaker 1: spike caused by Russia has kind of petered out. So

895
00:44:16,560 --> 00:44:18,640
Speaker 1: I think we're in a much better place inflation wise.

896
00:44:18,920 --> 00:44:21,360
Speaker 1: I think the Fed's main concern now is labor market.

897
00:44:21,680 --> 00:44:23,840
Speaker 1: Even there, we're starting to see, you know, some signs

898
00:44:23,880 --> 00:44:27,520
Speaker 1: that it's slowing enough to towards them off. So certainly

899
00:44:27,640 --> 00:44:31,480
Speaker 1: seeing the Philadelphia Fed President Harker out today saying that

900
00:44:31,520 --> 00:44:34,040
Speaker 1: he's in favor of shifting down to twenty five basis

901
00:44:34,040 --> 00:44:36,319
Speaker 1: point rate hikes as a sign that they're taking that

902
00:44:36,400 --> 00:44:39,080
Speaker 1: into account and probably will slow down pretty quickly here.

903
00:44:39,760 --> 00:44:43,359
Speaker 1: So we see inflation coming down here, Sam, certainly, But

904
00:44:44,200 --> 00:44:47,720
Speaker 1: how about wages here? I mean wage growth has been strong,

905
00:44:47,800 --> 00:44:50,480
Speaker 1: but certainly below that of inflation. How do you think

906
00:44:50,480 --> 00:44:54,760
Speaker 1: about that dynamic? That's right, and uh, you know, workers

907
00:44:54,840 --> 00:44:58,520
Speaker 1: have not seen their wages keep up with inflation so far, um.

908
00:44:58,600 --> 00:45:01,280
Speaker 1: But it does show so that you know, wages themselves

909
00:45:01,360 --> 00:45:03,520
Speaker 1: are slowing and I think that's really what the FED

910
00:45:03,640 --> 00:45:07,000
Speaker 1: is focused on. And certainly the total wage income in

911
00:45:07,080 --> 00:45:09,400
Speaker 1: terms of the number of people working, the amount that

912
00:45:09,400 --> 00:45:11,360
Speaker 1: they're earning prour and the number of hours they're working,

913
00:45:11,800 --> 00:45:13,759
Speaker 1: that's been slowing as well. It's not quite where they

914
00:45:13,800 --> 00:45:16,160
Speaker 1: want to see it, but that's coming down closer to

915
00:45:16,280 --> 00:45:18,560
Speaker 1: levels of last few months that would be consistent with

916
00:45:18,640 --> 00:45:21,000
Speaker 1: you know, with low inflation. So I think that's the

917
00:45:21,080 --> 00:45:24,399
Speaker 1: key metric, you know, taking everything into account, how much

918
00:45:24,400 --> 00:45:26,960
Speaker 1: people are working, how many and what they're earning. Uh,

919
00:45:26,960 --> 00:45:29,200
Speaker 1: and that's coming back closer to where they want to

920
00:45:29,200 --> 00:45:32,880
Speaker 1: see it. Um. So I think it's uh, you know,

921
00:45:32,880 --> 00:45:34,799
Speaker 1: one of those things where it's bad news is good

922
00:45:34,800 --> 00:45:36,960
Speaker 1: news still for the markets and for the Fed. They

923
00:45:36,960 --> 00:45:39,239
Speaker 1: want to things see things slow down, which is less

924
00:45:39,239 --> 00:45:41,400
Speaker 1: good for the workers who are earning that money, but

925
00:45:41,960 --> 00:45:43,879
Speaker 1: better from the standpoint of not having to raise rates

926
00:45:43,880 --> 00:45:47,120
Speaker 1: so much. So do we take the FED at their

927
00:45:47,120 --> 00:45:49,120
Speaker 1: word though, that they're gonna you know, they've been so

928
00:45:49,239 --> 00:45:51,759
Speaker 1: hawkish now the last couple of days we've heard I

929
00:45:51,760 --> 00:45:54,120
Speaker 1: think at least three FED speakers come out and say

930
00:45:54,160 --> 00:45:56,680
Speaker 1: twenty five base points instead of fifty, which I could.

931
00:45:57,239 --> 00:45:59,279
Speaker 1: I feel like it's a little bit devish. Nonetheless, they

932
00:45:59,320 --> 00:46:02,279
Speaker 1: all say, you know, Raphael Bostic said we're going to

933
00:46:02,400 --> 00:46:05,640
Speaker 1: hold rates high for a long time, and the market

934
00:46:05,719 --> 00:46:09,120
Speaker 1: just doesn't seem to believe them. Why Now, that's right,

935
00:46:09,160 --> 00:46:12,840
Speaker 1: the market definitely does not see the rates staying high

936
00:46:12,880 --> 00:46:15,879
Speaker 1: above five for a long time. Certainly that the way

937
00:46:15,880 --> 00:46:18,880
Speaker 1: the Treasury YO curve and everything else's position now suggests

938
00:46:18,880 --> 00:46:21,960
Speaker 1: that they're expecting rates to not only probably not get

939
00:46:22,000 --> 00:46:24,120
Speaker 1: quite that high, but also to come down you know,

940
00:46:24,280 --> 00:46:26,719
Speaker 1: fairly soon, meaning potentially even by the end of this year.

941
00:46:27,000 --> 00:46:29,799
Speaker 1: It's not early next year. Um, And so I think,

942
00:46:30,160 --> 00:46:31,960
Speaker 1: you know, looking at where the inflation data is, where

943
00:46:31,960 --> 00:46:33,720
Speaker 1: the wage growth is a lot of what the surveys

944
00:46:33,719 --> 00:46:35,920
Speaker 1: are showing I s M and things like that. I

945
00:46:35,920 --> 00:46:38,880
Speaker 1: think the bond market is going to assume that the

946
00:46:38,920 --> 00:46:42,839
Speaker 1: FED responds to economic data going forward more like they

947
00:46:42,920 --> 00:46:45,160
Speaker 1: used to, meaning that signs of slowing in the economy

948
00:46:45,400 --> 00:46:48,800
Speaker 1: will produce fewer rate hikes and then potentially rate cuts,

949
00:46:49,360 --> 00:46:52,000
Speaker 1: and that that's seeing things, uh you slow down fairly

950
00:46:52,080 --> 00:46:56,239
Speaker 1: rapidly over the course of this year, will provoke rate

951
00:46:56,239 --> 00:46:58,560
Speaker 1: cuts to bring the rates back down. Because even even

952
00:46:58,560 --> 00:46:59,960
Speaker 1: the FED things that two and a half percent is

953
00:47:00,040 --> 00:47:02,640
Speaker 1: the long run, you know, kind of target over the

954
00:47:02,640 --> 00:47:04,800
Speaker 1: next you say, five years, and so that four and

955
00:47:04,840 --> 00:47:07,719
Speaker 1: alf for five would still be very tight relative to

956
00:47:07,920 --> 00:47:10,759
Speaker 1: that long run target, and so there's still room to say,

957
00:47:10,840 --> 00:47:13,399
Speaker 1: bring it down um from four and alf for five

958
00:47:13,520 --> 00:47:16,480
Speaker 1: to four and still be considered tight even if it's

959
00:47:16,840 --> 00:47:19,200
Speaker 1: moving in the direction of cuts. Sam, how do you

960
00:47:19,200 --> 00:47:22,520
Speaker 1: feel about the non US stocks? We had Tim Craighead,

961
00:47:22,520 --> 00:47:26,000
Speaker 1: who runs research for Bloomberg Intelligence in Europe, and he

962
00:47:26,080 --> 00:47:28,120
Speaker 1: was coming on and he's a strategist over there saying

963
00:47:28,160 --> 00:47:30,640
Speaker 1: that Europe's done better and he expects it it may

964
00:47:30,680 --> 00:47:32,680
Speaker 1: continue to do better. How do you feel about non

965
00:47:32,800 --> 00:47:36,279
Speaker 1: U s stocks? Yeah, So in my work the last

966
00:47:36,320 --> 00:47:38,560
Speaker 1: few months, I've been much more in favor of non

967
00:47:38,640 --> 00:47:41,880
Speaker 1: U S stocks than U S stocks, and particularly in Europe,

968
00:47:42,200 --> 00:47:43,799
Speaker 1: and a lot of that is driven by what I

969
00:47:43,840 --> 00:47:47,880
Speaker 1: see in the analyst activity earnings estimate for revisions, I

970
00:47:47,880 --> 00:47:50,560
Speaker 1: have been holding up much better in Europe than they

971
00:47:50,560 --> 00:47:52,879
Speaker 1: have in the US, particularly compared to the large cap

972
00:47:53,160 --> 00:47:56,520
Speaker 1: gross stalks here, and so I think Europe's in fact

973
00:47:56,560 --> 00:47:59,000
Speaker 1: Europe does not have the big tech heavy names that

974
00:47:59,120 --> 00:48:02,919
Speaker 1: we have, is finally now working in their favor and

975
00:48:03,040 --> 00:48:05,200
Speaker 1: UH and that there may avoid a recession this year

976
00:48:05,520 --> 00:48:08,919
Speaker 1: thanks to the milder winter and the preparations they've made

977
00:48:08,960 --> 00:48:11,920
Speaker 1: to deal with energy crisis there. So I don't think

978
00:48:11,920 --> 00:48:14,160
Speaker 1: things are going to be fantastic in Europe, but they'll

979
00:48:14,200 --> 00:48:18,400
Speaker 1: be potentially better than expected. The sentiment towards Europe in

980
00:48:18,560 --> 00:48:21,239
Speaker 1: terms of the economy was really really negative for much

981
00:48:21,239 --> 00:48:23,000
Speaker 1: of last year, particularly towards the end of the year,

982
00:48:23,320 --> 00:48:25,319
Speaker 1: and I think, you know, as that sort of you know,

983
00:48:25,800 --> 00:48:29,000
Speaker 1: gets mitigated, things look a little less bad than the

984
00:48:29,040 --> 00:48:32,040
Speaker 1: stocks can outperform on a relative basis. Firsts the US.

985
00:48:32,160 --> 00:48:35,359
Speaker 1: By the way, I looking January resume, you're an equities guy,

986
00:48:35,600 --> 00:48:37,680
Speaker 1: but what do you think about these yields were seeing

987
00:48:37,680 --> 00:48:41,200
Speaker 1: in fixed income? Is it worth taking a bite. I've

988
00:48:41,200 --> 00:48:45,320
Speaker 1: been underweight UH bonds in my asset allocation work because

989
00:48:45,360 --> 00:48:48,799
Speaker 1: the bond yields right now don't look particularly attractive. They've

990
00:48:48,800 --> 00:48:51,080
Speaker 1: already priced in a fair amount of what the Fed

991
00:48:51,200 --> 00:48:53,719
Speaker 1: is likely to do in terms of cutting rates, and

992
00:48:53,800 --> 00:48:55,680
Speaker 1: you know rates may still be going up in Europe

993
00:48:55,680 --> 00:48:58,080
Speaker 1: as well. Um, so my guests would be that the

994
00:48:58,080 --> 00:49:00,480
Speaker 1: short end cash is probably better and you know, the

995
00:49:00,520 --> 00:49:03,480
Speaker 1: longer term bonds right now, but I still like I

996
00:49:03,520 --> 00:49:06,440
Speaker 1: like equities better than both than anywhere in fixing. Come

997
00:49:06,480 --> 00:49:09,120
Speaker 1: at the moment, all right, Sam, great stuff. Appreciate getting

998
00:49:09,400 --> 00:49:12,640
Speaker 1: your thoughts today. Sam Burns, founder and chief strategists at

999
00:49:12,640 --> 00:49:16,440
Speaker 1: Mill Street Research, located in sure Born, Mass. I'm not

1000
00:49:16,480 --> 00:49:17,920
Speaker 1: sure what that is. Well, I'm just gonna guess it's

1001
00:49:17,960 --> 00:49:20,160
Speaker 1: somewhere greater Boston, but I'll look on the Google maps later.

1002
00:49:23,600 --> 00:49:26,680
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

1003
00:49:26,719 --> 00:49:30,520
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever

1004
00:49:30,600 --> 00:49:34,240
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1005
00:49:34,520 --> 00:49:38,040
Speaker 1: at Matt Miller three. Pet On Ball Sweeney I'm on

1006
00:49:38,040 --> 00:49:40,960
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always

1007
00:49:41,000 --> 00:49:42,839
Speaker 1: catch us worldwide at Bloomberg Radio,